As you read this, some of you may be thinking that you are not that
financially or mathematically knowledgeable, so how can I be a CFO? I
have known CFO's of successful businesses that did not have a financial
background. The key to their success as a CFO is that they
took charge of setting the road map for the company while knowing
how to ask the right questions and relying on other's technical knowledge.
For your personal finance, it is setting up and taking charge of your
road map and possibly supplementing this with the knowledgeable advice
from financial professionals.

The CFO role is about taking charge of one's financial future.
People get in trouble by letting others control their finances without
taking an active oversight role. Over the years, there have been
many investors left in ruins when their financial advisor with total control of their assets
decided to leave
town in the middle of the night. Also, there have been
millionaires who spent all their money because they expected their financial
advisor
to
warn them if their spending habits got out of hand while their financial
advisor got paid by keeping them happy and did not want to get fired
for saying "no
more". Thus,
even if you do not have a financial background, it is important that
you take control of your finances.

The qualities of a good CFO are:

Takes responsibility for one's financial future

Knows when to invest in future (e.g., training, education, etc.)

Ability to control current expenses and to watch the bottom line

Asks the right questions when given advise

Every CFO will have some traits of a penny pincher and spendthrift. Controlling
the day to day expenses is a delicate balance. In order to save,
there has to be some cost control (penny pinching) so that expenses
are less than income. And, there has
to be some spendthrift in the CFO as well because all work and
no play (spending for fun) can lead you to getting burnt out.

It is blending the two that is the key. Yet, we more typically
come from one of these two traits (penny pincher or spendthrift). These
traits are driven by our emotions. To
overcome these traits the first thing that you need to do is understand
where you have acquired these traits from.

Penny Pincher

Being a penny pincher was needed for those who lived
through the Great Depression. As time passes, this
generation is having
less of
an
influence on
today's society. We can see this by looking back to the 50's
and 60's when most people only bought what they could afford. Credit
cards did not exist. In comparison, today many people buy what
they want and putting a sizable balance on their credit cards. The difference
between buying what one could afford to buying what one wants can be
seen in the sizes of homes these days. Even with smaller families,
the size of an average home has increased significantly. We
have transformed from being a nation of savers to a nation of spenders.

Penny
pinching can be good in moderation. Yet, when
taken to extreme it can manifest lack. Some examples are:

If you avoid going to college because do
not
think
you can
afford school you will never get ahead in life because
you are not investing in
the future. Studies
have shown college graduates make significantly more than high school
graduates even
after adjusting for the cost of college.

If you are saving just to become a millionaire (with less emphasis
on saving for retirement), this may lead to an emotional savings
problem. To save to become a millionaire, may mean that
you are saving to enhance your self-esteem. Many are striving to
become a millionaire because it sounds so appealing. It
is one thing to save for a rainy day or for retirement. However,
when you save as a sense of accomplishment it is a never ending
cycle. Because
once you become a millionaire, then what? Many millionaires then
say they only feel prosperous if they have $5 million. You will still feel
the need to save to prove yourself to others. The goal may then
change to having a boat or a fancy convertible. It is like
the size of homes today. Once
you get a larger home say 3,000 square feet, you may feel good for
a few
months. Then
your neighbor buys a 4,000 square feet home and shows it off, guess
how you will
feel? You well feel lack, no matter what you have,
it is not enough.

If you are saving by cutting things out that you love (a good
cup of coffee or a morning bagel), things that you love, you may feel
resentful latter on for giving up so much. It is a problem some
people approaching retirement have. They spent most of their
time raising their family while giving up vacations and golf. Then
when their children leave their house, they fill this sense of lack
and have extra money now that their children are gone. They
start going on vacations again and join the local country club.
Thus, go from being penny pinchers to spendthrifts without even
realizing it or realizing if they need to ramp up their retirement
savings. If we feel deprived, this will only last so long before
we boom-a-rang to the other side (overspending). The key is to first see where your priorities are (good
coffee, retirement, a nice car, etc.), then cut those with low priorities. If
you give up what you love to save a few pennies, you will end up resenting
it later by sabotaging your saving plan. You may not decide to
totally give up your morning coffee to save a few dollars. Yet,
you may decide to cut back to buying it only twice a week in order to
not feel deprived.

Cutting pennies may not be enough when you are spending thousands
on a lifestyle that you can not afford (with expensive cars and homes). Unfortunately, many
who are living over the edge can only easy cut out many of life's simple
pleasures (like a cup of coffee or occasional night out) instead of
cutting expenses marginally on larger purchases (like car and home)
before they were made.

Overall, being able to save a few pennies is better than spending on
a whim. Yet, it should be done in balance with spending and investing.

Spendthrift

The
spendthrift is one who spends money like there is no tomorrow. Some
prosperity teachers believe that prosperity centers around how deserving
one feels, prosperity comes to those who feel
deserving (which it does to a point). This logic is over-stretched
though. It continues to say that
in order to feel deserving, one should spend at the level of what they
feel they deserve (e.g., to be a millionaire, one should live like a millionaire). This
is where marketers focus their energy on. They want you to feel
that you deserve their product (e.g., the sports car). Their
motto live
for today and tomorrow will take care of itself.

As Americans, we have moved towards
being spendthrifts at the time we complain that we can not make ends
meet. According to the Washington Post, the average size of houses
in America has increased 55% to 2,330 square feet from 1970 to 2005. In
addition, 36 percent of home buyers under the age of 35 rank having a
home theater as important or very important. At the same time,
many families feel the need to have two wage earners to survive in this
world and wonder if they will have enough for their retirement.

Yet, a spendthrift has its advantages. A good CFO knows when to
spend. CFOs need to spend on good investments such as educating its
workforce or spending money on a new business venture. He also knows that if he
cuts too much of the extras (in either pay, benefits and fringe benefits) that
the workforce may revolt at him being too cheap and decide to leave. In
our personal life, it is getting an occasional spa treatment or a new set of golf
clubs to treat ourselves (and avoid our internal revolt that may lead to
a weekend spending spree).

Lastly, what we focus on (may) will expand. If we
are continuously watching our pennies then our focus is on lack and our
lack will expand. Saving on the morning cup of coffee to cut a few
cents may lead to resenting the job that does not pay enough for us to enjoy
the simple pleasures of life. This resentment will then grow to the
point where we hate going to work and it will expand to not getting the next
promotion or losing the job because the manager does not want to promote
those who hate coming to work.

Balance

The key with these archetypes is to balance
the energy. We need
to save for our retirement. And, along the way we need to have fun
and enjoy the fruit of our labor. Yet, if we live high on the hog
now, the hog may be lean for retirement. The key is to find out
what you really need versus what you want. In looking at your budget,
how much of it is really a want? Remember, is a house or a car
a need or a want? To some extent cars and houses are a need when we are talking
about basics, but many have bought a bigger house or a nicer car making
it more of a want. Then be grateful for what you have and for what you
are saving to have a comfortable retirement.

The material on this website is provided
for educational purposes only. We make no guarantees regarding
the accuracy, completeness, or applicability of any material presented
on this website. This website is not a substitute for individual
financial or counseling advice. You should seek the advice of
a professional regarding your particular situation. My Financial
Awareness is not responsible for any losses, damages or claims that may
result from
your
financial decisions.